AML and vessel sale and purchase contracts
Vessel sale and purchase agreements can be highly complicated, with numerous supporting documents and considerations around the delivery process, buyer’s choice of flag, and duty and GST implications. An often overlooked part of the process is around anti money laundering (AML) requirements, which, given the conduct of the agents supporting buyers and sellers in completing the transaction, presents an area of not-insignificant risk for clients and agents alike.
As maritime lawyers, Dawson & Associates is governed by the New Zealand Anti-Money Laundering and Countering Financing of Terrorism (Requirements and Compliance) Regulations (the Regulations), which sets out the types of activities that require us to complete additional client due diligence and verification of documents in order to complete a transaction.
What is a captured activity? A captured activity are specific financial transactions or business activities which trigger compliance obligations under the Regulations. In a vessel sale and purchase context, these include:
Drafting a contract (as opposed to advising on an externally provided provided template)
Holding client funds (including as an escrow agent)
Acting as a corporate formation agent (arranging for the incorporation of corporate structures for vessel ownership)
Engaging or directing people to act on behalf of the client (drafting powers of attorney or deeds of assignment).
These are all common activities in a standard sale and purchase matter, and all of which trigger AML responses which need to be complied with in order to avoid potential investigation and sanctions by the regulator.
How do you respond where an activity is captured?
When an activity is captured, customer due diligence (CDD) must be performed. This can take a variety of forms but generally involves clients providing us with certified copies of documents including proof of identity and residence, such as a passport and utility bill. It is important to remember that these must be verified as true copies, meaning you will need to have them certified by a Justice of the Peace, lawyer, or notary.
In some instances we will also require evidence of source of wealth or source of funds; an explanation of how you as a client have generated your income (whether through work, business and asset sales, or otherwise), and where the specific funds in the sale and purchase transaction have come from, particularly where the funds are distinct from your source of wealth. This can usually be provided by a letter from your accountant or equivalent, substantiating the legitimacy of your wealth and making it clear that there are no dubious sources.
Failure to comply with the Regulations and associated legislation can have massive implications, with maximum fines of $5 million and imprisonment terms of 2 years applying in the event of an AML offence being committed.
These requirements can be onerous and may represent a stumbling block for the progression of a matter, but are a key compliance mechanism that must be adhered to by lawyers, financial advisers, and other agents that assist clients with vessel sale and purchase matters. Engaging with the requirements early is a reliable way of ensuring that your matter does not get held up at a crucial point, and provides peace of mind that if the matter is audited and reviewed by the regulator.
A typical sale and purchase matter may involve several captured activities, whether through the initial drafting of the contract, appointing a power of attorney to attend the delivery meeting, or holding escrow funds. Dawson and Associates are highly experienced in vessel sale and purchase matters, including responding to captured activities and guiding clients through the AML process.
If you have any questions about buying and selling vessels, captured activities and AML processes, or are looking to buy or sell a vessel, please contact Peter Dawson on +64 27 229 9624 peter@maritimelaw.co.nz or Troy Stade on +64 27 368 6730 troy@maritimelaw.co.nz.